Controversy over the charitable status of private schools was reignited today after the charities watchdog came under fire from MPs and peers.

Geraldine Peacock, the incoming chairwoman of the Charity Commission, faced a grilling from the joint parliamentary committee scrutinising the draft charities bill.

Ministers have promised that the bill will force charities charging high fees, including private schools, to prove they offer a public benefit in order to keep their charitable status and tax breaks.

Ms Peacock, under repeated questioning by the committee, said she stood by written evidence submitted by the commission, which says the new legislation would "probably not change" the charitable status of the schools because it would not override case law.

The commission's new chairwoman admitted that paragraph 19 of the evidence had "become notorious" but said it represented "the situation as it is".

The committee chairman, Alan Milburn, pressed her to say if she stood by the evidence. Ms Peacock said she did but added: "Under the new law I think it might change."

Mr Milburn warned her not to "shilly-shally". He said: "What you can't do is submit evidence to this committee and then walk away from it."

He asked if Ms Peacock disagreed with members of the Charity Law Association, independent schools, and others who had submitted evidence saying the commission's interpretation was wrong. Ms Peacock replied: "Not in a pig-headed way."

In a heated exchange Mr Milburn told her: "Your interpretation is the one that counts," because under the draft bill the commission would be responsible for testing charity's public benefit.

Lord Phillips of Sudbury warned: "As things stand this is a lawyer's field day but no one else's. The great British public will have an absolute lack of clarity on what public benefit means."

Asked by members of the committee if private schools could not be taken out of charitable status, the commission's head of legal services, Kenneth Dibble, said: "Case law suggests independent schools are charitable including those that charge high fees."

This was the basis of the school's charitable status for over 100 years. Unless case law changed he added "it could be said there's an expectation that they should remain charities."

Mr Milburn told Ms Peacock: "If what you're saying is true in paragraph 19 then as far as the public benefit test applying to this particular category... effectively the test devised by the government in this legislation is meaningless."

A series of other witnesses had told the committee that the draft bill should be amended. "They all agree it's necessary."

He told Ms Peacock: "You're going to be put in a terribly difficult position, you're going to have to apply judgement because of lack of clarity in the legislation."

Ms Peacock replied: "Yes, but whatever definition you incorporate into the bill will cause controversy."

Lord Phillips asked if "non-exclusive criteria" for assessing public benefit could be added to the bill. Ms Peacock replied: "It's a compromise."

Mr Milburn demanded: "What's wrong with it?"

And Mr Dibble replied: "Nothing, as long as it's universal and creates a level playing field across the sector."

Mr Milburn pressed: "Your view is that as [the bill is] drafted you don't have a level playing field?"

Mr Dibble agreed: "Yes."

At the close of the session MP Andrew Mitchell warned Ms Peacock: "I've come to the conclusion that there is a huge amount of public trust and confidence in charities but there is not a huge amount of public trust and confidence in the Charity Commission."

The commission must approach its task "with much greater humility" and there was concern about the commission's powers and the way it intended to use them.